Goodbye, checks: States benefits move to direct deposit, debit cards

Programs, fees vary widely: 9 things to know

By Amy Buttell Crane

Following the federal government's lead, state governments are migrating more payments -- for everything from unemployment to child support -- away from paper checks.

But while some experts hail the move to debit cards and direct deposit as safe and convenient for consumers, it also brings a list of rules, restrictions and fees that can trip up consumers who don't do their homework.

For the states, the switch is largely about cutting costs. They are partnering with bank or card transaction companies to manage these programs.

Experts say the move holds benefits for the consumer as well. "Not only is there a significant cost savings associated with the use of these cards for state governments, but there are also security issues," says Dave Turner, senior vice president, government solutions at ACS, a division of Xerox that provides debit card services to state and federal government agencies. "Checks can get lost or stolen, or people may not have access to their mail in the event of a natural disaster. It's much more convenient to have a card you can keep with you."

Major players in this space include Chase, Wells Fargo, Bank of America and U.S. Bank, but each program has different rules and regulations. They have some things in common, though.

Here are nine things you should know if you currently receive or might soon receive a state-sponsored debit card for your state benefits or state administered payments:

1. Your payments are automatically loaded on your card. Virtually all state agencies will issue a card once without charge, and automatically reload the benefits on that card at regular intervals when payments are issued or administered.

2. Use the card at retail stores to purchase items and get free cash back. By far, the best places to use your debit card are at retail stores where you can use the card without a fee and get free cash back.

3. Check your balance online or via a toll-free customer service number. In most cases, you'll have to pay a fee to check your balance at an ATM, although some states do allow free balance inquiry checks at affiliated ATMs. For example, Pennsylvania EPPI card users, who are recipients of child support payments, can get their balances free at Wells Fargo/Wachovia ATMs. Also, many states limit the number of balance inquiries you can make over the phone to four or five per month and charge $1 or so for every additional inquiry.

4. You'll pay a fee if you need a replacement. That fee is typically $5 -- if you can wait to get the card via first class mail. But if you're stuck and need overnight delivery, it can cost as much as $15 to $25 extra for the replacement.

5. Beware overdraft fees. In many states, you can only spend as much as the benefit that is placed on your card by a state agency. But in some states, you get charged a substantial overdraft fee if you overdraw your card.

6. Sign up for alerts. If you enroll in your state's online banking program, you may be able to sign up for alerts about low balances and deposits.

7. ATM withdrawals may be limited. In Oklahoma, recipients of unemployment insurance payments get two free ATM withdrawals per month at Bank of Oklahoma. Other programs push consumers toward a specific bank's ATMs. For example, New York Direct Payment debit card recipients can make free cash withdrawals at Chase ATMs, but they only get one free withdrawal per month elsewhere. Some beneficiaries get no free ATM withdrawals. Typical fees for each ATM withdrawal after free benefits are used run from 90 cents to $2 per withdrawal. There may also be individual bank surcharges for such ATM withdrawals.

8. Watch out for programs with special rules. If you receive food assistance, you can only use your card to purchase certain types of items. Also, some states automatically roll over unused benefits from one month to another but cancel benefits that aren't used within 365 days. Several states will charge you a fee for using a card that is inactive.

9. Use tellers wisely. Some programs allow you to get free cash from bank, credit union and savings and loan tellers. However, these services are usually limited to certain specific institutions or banks that are affiliated with certain payment systems, such as MasterCard. Go outside that network to get a cash withdrawal via a teller and you'll pay a fee.

Published: November 18, 2010

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